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    Gary & Co Ratio Analysis & Cost of Trade Credit

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    1. Given the following data for Gary and Co (Millions of Dollars)

    Balance Sheet Dec 31 200X

    Cash $ 45
    Accounts Payables $ 45
    Marketable Securities 33
    Notes Payables 45
    Receivables 66
    Other Current liabilities 21
    Inventory 159
    Total Current liabilities $111
    Total Current Assets 303
    Long term debt 24
    Total liabilities $135
    Net Fixed Assets 147
    Common Stock 114
    Total Assets $450
    Retained Earnings 201
    Total stockholders' equity 315
    Total liabilities and equity 450

    Income Statement Year 200X

    Net sales $795
    Cost of goods sold 660
    Gross profit 135
    Selling expenses 73.5
    Depreciation 12
    EBIT 49.5
    Interest expense 4.5
    EBT 45
    Taxes (40% 18
    Net Income 27

    Calculate the following ratios:

    Current ratio
    Times interest earned
    Inventory Turnover
    Sales/Total Assets
    Profit margin on sales
    Return on Total Assets
    Return on Common Equity

    Hint: Use Net Sales of $795.
    Days sales out is also called Days Sales Uncollected.

    Show the formulas and numbers used in the calculations. Show calculations/formulas

    2. Calculate the cost of trade credit given terms of 3/20 net 60
    When performing this calculation why not use the number 100. Make sure to show the formula. Show calculations by hand as well.

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    Solution Preview

    See the attached sheet for calculations.

    Current Ratio = Total Current Assets/Total Currrent ...

    Solution Summary

    The solution computes various accounting ratio's for Gary & Co and also find out cost of trade credit in another example.